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1. Credit Notes are passed u/s 34 of CGST Act incase of

– Taxable Value and Tax Charged is more than that payable

– Deficiency in Service/Goods

– Sales Return

2. In Business, GST Credit Notes under 1st Limb are passed for Post Sale Discounts were

– There is a pre-sale agreement

– The CN Can be linked to original invoices

– The recipient has reversed the ITC

3. Incase the above transaction has not passed the Triple Tests as above, a Commercial (Non-GST) Credit Note should be issued

4. For Eg. –

a. A (Manufacturer) sells a TV to a dealer (B) at Rs.1 Lakh Plus 18% GST

b. After 2 Months A gives a ‘post discount’ commercial CN of Rs. 10,000 to B

c. B sells the TV at Rs.95,000/- plus GST

5. Issues –

a. There is an accumulation of GST of Rs.1000 to B

b. B is asked by The GST Dept to reverse the ITC

c. Some officers are of the view that this Rs.10000 is the vale of ‘Service’ by B to A

6. On accumulation of ITC to B –

a. It can liquidate it against sale of other goods/services or claim refund against any other exports

b. There is no ‘due date’ of utilizing ITC and so it can be carried forward as long as business exists

7. On Reversal of ITC –

a. No ITC reversal is required

b. The same has been held by The TAMILNADU STATE AAAR in the case of MRF Ltd. on 24.06.2019

c. The same has been clarified by Circular No. 92/11/2019-GST dated 07.03.2019 which states as follows –

D. Secondary Discounts

i. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s A supplies 10000 packets of biscuits to M/s B at Rs. 10/- per packet. Afterwards M/s A re-values it at Rs. 9/- per packet. Subsequently, M/s A issues credit note to M/s B for Rs. 1/- per packet.

ii. The provisions of sub-section (1) of section 34 of the said Act provides as under:

“Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.”

iii. Representations have been received from the trade and industry that whether credit notes(s) under sub-section (1) of section 34 of the said Act can be issued in such cases even if the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. It is hereby clarified that financial / commercial credit note(s) can be issued by the supplier even if the conditions mentioned in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. In other words, credit note(s) can be issued as a commercial transaction between the two contracting parties.

iv. It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied.

v. In other words, value of supply shall not include any discount by way of issuance of credit note(s) as explained above in para 2 (D)(iii) or by any other means, except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied.

vi. There is no impact on availability or otherwise of ITC in the hands of supplier in this case.

8. Can the said CN be colored as a ‘service’ provided by B to A –

a. The activity is of ‘purchase of TV’ by B from A and subsequent ‘sale of TV’ by B to Customer

b. There is no ‘activity other than sale of goods’ performed by B to A

c. There is no ‘quid pro quo’ – i.e. no consideration for any activity performed by B to A

d. It is a simple case of transfer of property in moveable product

e. CN is for ‘discount’ which is a ‘financial benefit’ for meeting target. This is linked to original ‘supply’

9. Is passing a GST Credit note a Solution –

– No, it is not advisable to color a transaction against the principles of Sec 15(2) just because few officers are taking a stand which is contrary to law.

Author Bio

Mr. Vivek Jalan is a Fellow Member of the Institute Of Chartered Accountants of India (ICAI) ; a qualified LL.M (Constitutional Law) and LL.B. He is the Chairman of The Core Group on Indirect Taxes of The CII- Economic Affairs and Taxation Committee (ER); He is the Chairman of The Fiscal Affairs Com View Full Profile

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